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Account-based pension fees
07 Dec 2021
In this article, we look at account-based pension fees, and reveal the minimum, maximum, and average fees you can expect to pay.
When it comes to opening an account-based pension, you can choose to roll over your super into the same fund you used during your working days, or open an account-based pension with a different fund.
When it comes to making a decision, it’s important to look at the fees you’ll pay. Account-based pensions can be a tax-friendly way to use your super in retirement. However, the fees you’ll pay can eat into your nest egg over time. As we’ll see, there can be big variations in the fees charged by different super funds – and across investment options.
What’s included in account-based pension fees?
To build a complete picture of overall account-based pension fees, we have looked at:
- Administration fees: Charged for maintaining your account with the fund.
- Super fund member fees: Charged to be a member of the super fund.
- Indirect cost ratios: This includes an investment management fee and may also include a performance fee that is charged only if the fund outperforms a certain benchmark.
In most cases, you’ll pay fees no matter whether your pension fund notches up gains each year or dishes up the occasional loss.
What are the average account-based pension fees?
There is no single meaningful ‘average fee’ across all allocated pensions. Instead, it makes sense to look at average fees across investment strategies, as these will each earn differing long-term returns. You can see the minimum, average and maximum account-based pension annual fees by investment profile, along with the differences between the lowest and highest fees, in the table below.
Account-based pension annual fees by investment profile
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| Investment profile | Minimum fees | Average fees | Maximum fees | Difference |
|---|---|---|---|---|
| Cash (0%) | $60 | $934 | $3,800 | $3,740 |
| Conservative (20-39.99%) | $875 | $2,072 | $4,084 | $3,209 |
| Moderate (40-59.99%) | $875 | $2,341 | $4,559 | $3,684 |
| Balanced (60-79.99%) | $384 | $2,436 | $4,734 | $4,350 |
| Growth (80-100%) | $875 | $2,610 | $4,809 | $3,934 |
Source: www.canstar.com.au, 24/11/2021. Fees based on account-based pensions on Canstar’s database based on a $250,000 balance. Investment profile growth asset allocations based on Canstar’s Account Based Pension Star Ratings methodology.
What’s clear from our table is that account-based pension fees can vary widely.
If you opt for a cash-based investment for instance, you’re likely to pay the lowest average fees of $934 annually. There can still be variations though. You could pay anything from $60 to $3,800 each year, depending on your fund.
Across each of the investment options we’ve looked at, the biggest fee gap is found in a balanced investment option. Here, average fees work out to $2,436 annually. But you could pay as little as $384 through to a maximum of $4,734 each year if you opt for an account-based pension that’s available on Canstar’s database with a $250,000 balance. If you’re in a fund that sits at the high end of the fee spectrum, this difference could mean losing an extra $4,350 to fees annually – money that could be spent enjoying your retirement!
Finding outstanding value
Annual fees can have a huge impact on the value of your nest egg over time, especially if you’re paying more than you need to for an account-based pension. This highlights the need to shop around when choosing a super fund. The fund that may have been right for you during your working days may not always be the best choice when you hang up your work boots.
In 2021, Canstar researched and rated 54 account-based pension products from 51 different providers across 347 investment options for its Account Based Pension Star Ratings and Outstanding Value Award. Each eligible option was reviewed based on its annual investment performance after fees, and the array of features attached to the investment choice. Canstar’s research found which providers were offering outstanding value to consumers, considering not only investment returns (minus fees and taxes), but also features like investment flexibility, support and the ease of opening and closing an account to work out overall performance.
As your choice of account-based pension can play a key role in your retirement, it’s an area where seeking professional advice can help with your decision-making. Keep in mind when considering your options that past performance is not always a reliable indicator of future performance.
Image source: fizkes/Shutterstock.com
This article was reviewed by our Sub Editor Jacqueline Belesky before it was updated, as part of our fact-checking process.
